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Retailers often wonder how to measure returns from social network investments. It’s easy to do when the retailer is the community host.

Social networking is a tempting target for e-marketers, but measuring the success of social networking initiatives has been challenging because of the lack of reliable revenue-reporting metrics.

Now those metrics are available through customer-centric communities.

These are communities that merchants sponsor, enabling friends and relatives to create their own discussion groups. For instance, a pet food merchant might sponsor a community where friends share pet photos and discuss pet care, or a clothing retailer a community that lets group members interact with designers on message boards, view runway videos and share fashion trends.

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Each community can host many groups, each made up of people who know one another. These communities can also offer message boards, feedback loops, photo and file sharing, and other tools.

Tracking metrics

Tracking technology enables the retailer to understand how each community delivers return on investment, including measuring cost per acquisition as well as the cost to convert prospects to buyers, buyers to frequent buyers, and frequent buyers to enthusiasts.

E-mail and social networking tools play important roles in engaging community members. The communities track ROI by defining a core set of metrics used to build, manage, and optimize integrated e-mail and social networking tools in a branded community environment. In addition to measuring community size, growth, participation and activity, companies sponsoring these communities view reports at the participant level, showing individuals who (while participating in the community portal) click on links and place orders.

Integrating social network functionality with e-mail functionality and ROI tracking enables retailers to push targeted and personalized community reengagement e-mails to individual community members-e-mails providing content and offers based on specific actions taken by these individuals while visiting the portal. So someone participating in a message board exchange about putting on make-up would receive a reengagement e-mail with a tip from an expert on how to apply make-up, plus an offer for a sampler package of a specific brand of make-up.

Real-time ROI metrics allow marketers to measure community growth and success regarding two major performance indicators: acquisition and revenue. Metrics show the revenue per notification for an e-commerce company focused on health and beauty products, which I can’t identify by name. The figures show that revenue driven from notifications concerning online community activity generated five times the results of standard e-mail campaigns.

While revenue generated from reengagement e-mails, at 31 cents per message, was five times the six cents of standard e-mail, it was only about two-thirds of the 45 cents per message generated from direct web site reengagement e-mails. This is because direct web site reengagement e-mails, triggered by unprompted visits to the retailer’s web site, only go to consumers with primary relationships to the company; community reengagement notifications go both to primary subscribers and to members of their discussion groups.

ROI is tracked for all visitors to the community who click through to the company’s web site and make purchases, and the tracking links back to the most recent notification the person has received. Of course, as friends and family click through to the company’s web site and make purchases, they become part of the company’s primary subscriber list. Approximately 5% of the additions to the e-mail list of the beauty e-retailer in this example are acquired through the community process.

Metrics show exactly how each community-related action drives ROI, and which ones are worth continuing as the community grows. One key metric to monitor and tweak over time is frequency. Community members typically understand that their membership will include some level of marketing by the beauty merchant. But if campaigns are delivered too frequently or reengagement becomes too “in your face,” subscribers will begin to drop out of the community and disengage from the company.

Sales lift

Retailers will of course want to track sales that come from the online community, and tie those sales to the actions that prompted them. A person who is participating in a community message board or discussion group, for example, might see a promotion being offered through the community portal, and click on the promotion to make a purchase.

In the case of the beauty supplies e-retailer, by engaging customers in a social community, the retailer ensures it is top of mind when the customer is in the market to replenish beauty supplies. As a retailer adds message boards, community events, games, and additional content to its portal, the merchant can track exactly how each change affects sales.

In the case of the beauty supplies retailer, the merchant sends alerts to community members, either via e-mail or the widget they may have downloaded, to tell them of new activity in their networks. The retailer records when a consumer views the alert, when she clicks through to the portal, and when she continues on to the e-commerce site to make a purchase.

In one case, a total of 118,175 e-mail notifications generated an average of 21 cents per message, for total sales of $24,816.36.

This revenue generation speaks to the value of growing a community virally by enabling a company’s enthusiasts to drive the growth. Online communities attract web shoppers who often share the interests and buying habits of the original enthusiasts, and these new participants in many cases rapidly become buyers, frequent buyers, and even enthusiasts themselves.

Neil Rosen is founder and CEO of eWayDirect Inc., a provider of e-marketing services, and the former owner of The Bedroom Store, a regional chain of furniture stores. He can be reached at neil@ewaydirect.com.